A3 (5) - ASSESSING THE RISK OF MATERIAL MISSTATEMENT

Question 1

OBTAINING AN UNDERSTANDING OF THE ENTITY AND ITS ENVIRONMENT - Procedures

Answer 1

1- Inquiries
2- Analy1ical Procedures
3- Observation and Inspection
4- Other Procedures - Review external information

Question 2

OBTAINING AN UNDERSTANDING OF THE ENTITY AND ITS ENVIRONMENT - Factors to Understand the Entity and Environment

Answer 2

1- Industry, Regulatory, and Other External Factors
2- Nature of the Entity
3- Objectives, Strategies, and Business Risks
4- Entity’s Financial Performance
5- Internal Control, Including Accounting Policies

Question 3

ASSESSING THE RISK OF MATERIAL MISSTATEMENT - Scope of the Assessment

Answer 3

1- Separately assess inherent risk and control

2- Combine, then determine overall risk of material misstatement

Question 4

ASSESSING THE RISK OF MATERIAL MISSTATEMENT - Assessing Specific Risks

Answer 4

1- Assertion Level Risks - Specific accounting record

2- Financial Statement Level Risks - Overall

Question 5

ASSESSING THE RISK OF MATERIAL MISSTATEMENT - Factors that May Be Indicative of Significant Risks

Answer 5

a. Risk of fraud
b. Significant recent economic, accounting
c. Related parties and related party transactions
d. Improper revenue recognition
e. Non routine, unusual, or complex transactions
f. Accounting estimates
g. Illegal acts
h. Accounting principles subject to interpretations

Question 6

ASSESSING THE RISK OF MATERIAL MISSTATEMENT - Documentation

Answer 6

1- The discussion among the audit team
2- Key elements of the understanding of the entity
3- Risk assessment
4- The identified risks and related controls evaluated